Insight: Boeing may take year to decide on mini-jumbo revamp

NEW YORK/PARIS – Boeing Co appears to be at least a year away from offering a new version of the 777, its most profitable jet, timing that would be later than some airline customers want and could push them into the arms of rival Airbus.

Carriers such as Dubai's Emirates Airline and British Airways had planned on the new mini-jumbo, provisionally called the 777X, entering service by the end of the current decade. That being the case, the industry widely expected Boeing to begin selling the new jet by the end of this year.

With just seven weeks left in 2012, that timetable now appears increasingly unlikely, based on internal conversations between the planemaker and its customers.

"It's going to be way further off than people think," said a person familiar with the discussions who declined to be identified because the person was not authorized to speak publicly about the matter.

"Boeing is in conversations about it," the person added. "But the launch date (for sales) is a year away at least."

The 777X is aimed at the market for long-haul jets, worth hundreds of billions of dollars for Boeing and Airbus over the next decade or so. But some think delay by Boeing in creating the new 777 could push airlines into buying Airbus' rival A350-1000 jet, due to enter service in 2017.

Emirates, British Airways, Cathay Pacific Airways <0293.HK> and United Airlines , big buyers of the 777, have been pressing for the 777X to come sooner rather than later. The 777 is one of the most successful jets of all time and airlines are eager for an amped-up version that can go farther on less fuel with more passengers.

Rather than wait, United started talks with Airbus about upgrading some of its 25 orders for the A350-900 to the A350-1000, industry sources said. Cathay Pacific chose the A350-1000 in July. Analysts say others may grow impatient and follow.

In contrast, the 777X may not enter service until 2021 or 2022, rather than the end of the decade, based on Boeing's recent statements, said Richard Aboulafia, an analyst at the Teal Group in Fairfax, Virginia.

He was referring to comments by Boeing Chief Executive Jim McNerney on a conference call with analysts on October 24 in which he said, "We are looking at the end of the decade, beginning of the next decade" for entry into service.

"When you start throwing around 'early next decade' you're sending a message to customers to either buy our existing jets or go see Airbus," Aboulafia said. "You do not want to send that message."

A spokeswoman for Boeing said it hasn't changed the timing but declined to say if it will begin selling the first 777X by the end of the year.

"While we haven't set a firm timeline or launched the program, we've consistently talked about a potential market entry around the end of the decade and we are engaging with our customers to define the airplane and its ultimate timing," said Karen Crabtree, head of product strategy communications for Boeing. Boeing also said it always aims to balance spending between investment and shareholders.

STRATEGIC SHIFT?

Some analysts say the vague 777X timetable is fresh evidence of a bigger shift: a new reluctance by Boeing to plow capital into ambitious plane-development programs and an intention to instead return it to shareholders through higher dividends and share buybacks. Just five months ago, Boeing was seen by many as restoring an "engineering culture" that gave priority to new planes and production over immediate shareholder gains.

Also, linking "Boeing" and "delay" on the 777 serves as a painful reminder that the 787 Dreamliner, the world's first commercial carbon-fiber plane, arrived three and a half years behind schedule.

To be sure, Boeing and Airbus always do a delicate dance when launching new jets. Launch too early and they give their rival a chance to create a more technologically advanced jet. Launch too late and their rival has too much time to rack up sales, stealing the market.

In this case, the 777 delay frees up cash for other Boeing projects, such as the new 737MAX, aimed at the shorter-range market. It also avoids disrupting sales of the current 777 model, which is very popular.

And since timing and design of the 777X are must-win decisions, some say Boeing is wise to take time and get it right - even if that upsets some customers.

"We've all seen Boeing move quickly when they need to," said a person at a big Boeing customer who spoke on condition of anonymity. "If the industry is still asking this question (about timing) this time next year, then we may have some issues."

Last spring, the industry widely understood Boeing would seek board approval to begin selling the 777X by the end of the year or early 2013. That would mean work on building the jets could start in 2014, allowing the jet to enter service, or begin carrying commercial passengers, around 2019.

But the June resignation of Boeing's commercial airplane chief, Jim Albaugh - credited with solving many 787 production problems - and the ticking clock have raised concerns. Some analysts say Boeing is already at risk of waiting too long and losing its advantage in timing.

EYE ON AIRBUS

For its part, Boeing is keeping a wary eye on sales of the A350-1000, according to industry sources, and stands ready to pounce quickly if Airbus receives a surge in orders for its 350-seat rival model.

But if sales of the rival continue at a relatively sedate pace, Boeing will want to avoid moving too quickly and disrupting sales of its current-generation 777-300ER, while trying to catch the replacement cycle of 747-400s due to retire around the end of the decade, industry sources said.

Additionally, Boeing wants to be certain, before settling on the performance and economics of its 777X, that Airbus plans no further design tweaks to the A350-1000 to boost sales. Airbus has said it is happy with the design and there will be no further redesigns.

The A350-1000, the biggest member of the A350 family, is an all-new carbon composite design boasting fuel savings over the 777-300ER.

Boeing has limited margin for error. It also is juggling other complex programs such as the 787 and the stretched-jumbo Boeing 747-8. Airbus, too, has big programs under way, including smaller A350 versions and A380 superjumbo derivatives.

With order backlogs of more than 4,000 jets each, neither company faces a dire threat.

"When they get going, they'll do well," analyst Aboulafia said of Boeing. "But they'll miss a golden opportunity to deliver a knockout punch - launching the 777X quickly and badly damaging the A350-1000 before it gets traction in the market."